Pensions tax relief to"cost" government £40bn
For intermediaries only
The government will pay out £21bn in income tax relief for pension contributions this tax year, while national insurance relief payments will rise to £18.7bn, according to statistics from HM Revenue and Customs (HMRC).
The estimated figures - published 10 October - reveal the cost of income tax relief for registered pension schemes in 2019/2020 will be higher than the year prior, estimated at £20.4bn, and five years ago at £17.9bn.
This covers relief on contributions, relief on investment returns, and tax paid in retirement - but the figures do not provide estimates on the total receipt in tax when pensions are in receipt.
The latest data from the tax office also reveals national insurance relief for employer pension contributions will amount to £18.7bn, higher than the 2018/19 figure of £17.4bn, and the 2014/15 figure of £13.8bn figure.
Willis Towers Watson director David Robbins said these numbers"combine the estimated revenue forgone by not making people save in pensions from post-tax income, by not taxing pensions funds' investment income, and by not charging employer or employee national insurance contributions on employer pension contributions".
He added,"Factors pushing the numbers up include higher employer contributions in public sector schemes… Pushing the other way is the ongoing decline in the number of private-sector employees in expensive defined benefit schemes, a higher 40% tax threshold and - at least under current policy - a tapered annual allowance.
"While these may be official estimates, they do not measure anything very meaningful. They don't measure the incentives provided by the current tax treatment of pensions relative to saving in other ways… nor do they signal the short-term cash-flow gains that might be available from abolishing upfront tax relief and national insurance relief."
The rise in cost over the past five years follows a drastic increase in the number of people paying into an occupational pension scheme, following the introduction of auto-enrolment in 2012.
Earlier this year, The Pensions Regulator revealed more than 10 million people have now been enrolled into a workplace pension scheme, with the number only set to grow.